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Valuation of Variance Forecast with Simulated Option Markets
Engle, Robert F. - 2010
An appropriate metric for the success of an algorithm to forecast the variance of the rate of return on a capital asset could be the incremental profit from substituting it for the next best alternative. We propose a framework to assess incremental profits for competing algorithms to forecast...
Persistent link: https://www.econbiz.de/10013138666
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Security Baskets and Index-Linked Securities
Gorton, Gary B. - 2010
Security baskets and index-lined securities are securities whose values are functions of the cash flows or values of other assets. Creation of these "composite" securities would seem to be redundant since investors can cost1ess1y replicate them. In this paper we study the existence and optimal...
Persistent link: https://www.econbiz.de/10013138948
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Should Derivatives Be Privileged in Bankruptcy?
Bolton, Patrick - 2011
Derivative contracts, swaps, and repos enjoy "super-senior" status in bankruptcy: they are exempt from the automatic …, even though this risk could be borne more efficiently by derivative counterparties. In addition, because super …-senior derivatives dilute existing creditors, they may lead firms to take on derivative positions that are too large from a social …
Persistent link: https://www.econbiz.de/10013118249
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FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets
Levich, Richard M. - 2012
The Global Financial Crisis initiated a period of market turbulence and increased counterparty risk for financial institutions. Even though the Dodd-Frank Act is likely to exempt interbank foreign exchange trading from a central counterparty mandate, market participants have the option to trade...
Persistent link: https://www.econbiz.de/10013103054
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The Market for OTC Derivatives
Atkeson, Andrew - 2013
We develop a model of equilibrium entry, trade, and price formation in over-the- counter (OTC) markets. Banks trade derivatives to share an aggregate risk subject to two trading frictions: they must pay a fixed entry cost, and they must limit the size of the positions taken by their traders...
Persistent link: https://www.econbiz.de/10013084727
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Measuring Margin
McDonald, Robert L. - 2013
Policy makers and market participants alike wish to understand the amount, economic significance, and concentration of derivatives trading activity. This paper suggests that systematic measuring and reporting of margin by market participants, disaggregated by asset class, would provide more...
Persistent link: https://www.econbiz.de/10013088391
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Carry Trade and Systemic Risk : Why are FX Options so Cheap?
Caballero, Ricardo J. - 2013
In this paper we document first that, in contrast with their widely perceived excess returns, popular carry trade strategies yield low systemic-risk-adjusted returns. In particular, we show that carry trade returns are highly correlated with the return of a VIX rolldown strategy --i.e., the...
Persistent link: https://www.econbiz.de/10013089284
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Credit Default Swaps and the Credit Crisis
Stulz, René M. - 2010
Many observers have argued that credit default swaps contributed significantly to the credit crisis. Of particular concern to these observers are that credit default swaps trade in the largely unregulated over-the-counter market as bilateral contracts involving counterparty risk and that they...
Persistent link: https://www.econbiz.de/10013150831
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A Note on the Derivation of Linear Homogeneous Asset Demand Functions
Friedman, Benjamin M. - 2008
Among the numerous familiar sets of specific assumptions sufficient to derive mean-variance portfolio behavior from more general expected utility maximization in continuous time, the assumptions of constant relative risk aversion and joint normally distributed asset return assessments are also...
Persistent link: https://www.econbiz.de/10012774846
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Valuing the Futures Market Clearinghouse's Default Exposure During the 1987 Crash
Bates, David S. - 2008
Futures market clearinghouses are intermediaries that make large volume trading between anonymous parties feasible. During the October 1987 market crash rumors spread that a major clearinghouse might fail. This paper presents estimates of three measures of the default exposure on the popular...
Persistent link: https://www.econbiz.de/10012774903